Given the tension on the markets, the Treasury and the Bank of Italy are in favor of public intervention to support the credit institutions of our country. The message came from the ABI assembly, where the Economy Minister, Pier Carlo Padoan, and the number one of Via Nazionale, Ignazio Visco. “The new European regulations are very demanding – said the minister -, but they provide spaces of flexibility that must be fully exploitedespecially in case of systemic risk. The Government's dialogue with the European authorities is continuous on all the public intervention measures admitted”.
Along the same lines as Padoan, Visco he explained that, "given the risk that in a context of high uncertainty, limited problems could dent confidence in the banking system, a public intervention cannot be ruled out. We do not underestimate the signs of concern and nervousness that come from the situation on the financial markets and affect Italian banks: together with the other authorities we are acting with determination to promote effective market interventions". The Governor did not explicitly mention Monte dei Paschi, but the reference to the Sienese institute appeared clear.
According to Visco, the situation "requires the preparation of a public backstop to be activated in case of need, in full compliance with EU regulations, bearing in mind the potential systemic effects of any crises for individual member states and for the euro area ”. The Governor's reference is to the precautionary recapitalization envisaged by the BRRD directive (Bank Recovery and Resolution Directive), which does not exclude public interventions if the stability of the financial system is at risk.
At the opening of the same meeting, the president of ABI Antonio Patuelli had asked instead a bail-in change.
"BANKS: DROP IN THE STOCK EXCHANGE ACCEPTED BY NPL THEME, WHICH BUT IS NOT AN EMERGENCY"
As for the drop in the share prices of Italian banks, "it reflected the fears that a slowdown in growth could have repercussions on the profitability and conditions of intermediaries - continued Visco -, but it was accentuated by the presence of a high level of non-performing loans inherited from recession and concerns that current market conditions may make it more difficult to sell these exposures or raise capital.
However, Palazzo Koch's number one underlined again, "it is incorrect to speak of the problem of non-performing loans as an emergency for the entire banking system. Effective supervision must assess the actual situation of individual intermediaries using detailed information, using robust analysis, taking into account the average speed of recovery of debts. Most of the non-performing exposures are concentrated in banks in good financial condition despite the effects of the long and deep recession. The 'significant' banks with particularly high levels of non-performing loans and, among intermediaries, those with capital ratios (core tier 1) below 10 per cent held a total of 15 billion bad loans at the end of last year net of the write-downs already counted in the balance sheet also covered by real and personal guarantees”.
On the other hand, the Governor warned Italian banks not to find in any measures introduced to protect systemic stability "a pretext for delaying the important corrective actions that intermediaries must undertake as soon as possible. The challenges facing Italian banks, especially those currently in difficulty, are many and demanding: from more active management of non-performing loans, which aims at their transfer or more effective recovery if they remain outstanding budget, to the achievement of higher levels of efficiency; from the exploitation of the opportunities offered by the digital revolution to the necessary reorganization of the presence on the territory and the launch of extraordinary cost containment measures, also with reference to personnel expenses".
“NEW AGGREGATIONS COMING SOON. OK UNICREDIT RESET”
On the merger side, Visco expects “that other aggregative initiatives take place in a not long timei” and believes that the alliance currently being defined between BPM and Banco Popolare “constitutes an important test of the system's ability to renew following the reform process”.
The Governor then said that "the very recent renewal of the top management of a large bank lays the foundations for improving its capital position and raising its profitability levels in line with the requirements that the Supervisory Authority and the market require for systemic level groups at international level". The reference is to the managerial reorganization that has recently brought Jean Pierre Mustier to the helm of Unicredit.
"FROM BREXIT POTENTIAL -0,25 POINTS OF ITALY'S GDP IN THE THREE-YEAR PERIOD 2016-2018"
Finally, as regards Brexit, "the movements in interest rates and exchange rates - explained Visco - are not such as to have significant effects on Italy's growth prospects", but there is a potential effect from the decline of British exports which could be a quarter of a point of GDP less in three years, as well as risks deriving from possible unfavorable expectations. In the event of a 10% slowdown in imports to Great Britain, the upper limit of analysts' estimates, “the overall effect on the level of Italian product would be of the order of a quarter of a point in the three-year period 2016-2018. Higher risks for the medium-term prospects of our economy and the euro area could derive from the spread of unfavorable expectations which, as the experience of the crisis has taught us, can have non-linear and difficult to predict effects”, he concluded the governor.
As for the performance of the financial markets after Brexit, according to Padoan we should "resist the temptation to react nervously: decisions must be made on long-term prospects aimed at the future".
